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EC: Lenders must tell borrowers why they have been rejected

Lenders will be forced to disclose their reasons for refusing a customer a mortgage under proposed plans announced by the European Commission today.

In its Directive it says where an application has been rejected the lender must inform the consumer immediately and without charge as to the reasons for the refusal.

It says: “Where the application is rejected on the basis of an automated decision or a decision based on method such as automated credit scoring, the creditor must inform the consumer immediately and without charge and that the creditor explains the logic involved in the automated decision to the consumer.”

It says the consumer should have the opportunity to request for the decision to be reviewed manually.

The EC says when the applicant has been turned because the lender has consulted a database or credit agency the consumer must be told the name of the database and be given the right to rectify any information held on the database.

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  • mac 4th April 2011 at 2:08 pm

    They should have done this long time ago. Its really annoying when lenders tell “unfortunately you are declined”. We want to know why we were declined!!

  • paul rice 4th April 2011 at 11:20 am

    Mike – a failed credit score is a failed credit score…..usually meaning there is no 1 simple reason why.

    Do you really want some poor office minion to explain to you for 30 mins how the borrower having a credit search 12 months ago, coupled with not being on the voters roll and having a delinquent payment 3-6 months ago reduced the delphi score…….who cares!!!

    If you fail the credit score – its exactly that.

    If its adverse credit the lender shouldn’t be giving you the details anyway because its a DPA breach (yes yes I know its the borrowers information – ask whoever wrote the DPA why…..its never made any sense to me either.). So you still need to get a copy of the credit file.

    If a failed credit score offends any broker or customer then I have a simple and ingenious solution…..don’t use a company that credit scores.

    However I will make the point – credit scoring models are a right load of tripe and should be abolished so each case can be underwritten properly by a proper underwriter (i.e not an onsite underwriting wideboy who hits the approve button at the mear flutter of an eyelid).

  • Mike The Mortgage Man 3rd April 2011 at 8:47 am

    But what if the EU considers “failed credit score” as an acceptable excuse for turning lenders down?
    I also doubt the employees would be able to explain the reasons for a decline in a marginal case and too lazy to find out.

  • Iain Stephen 1st April 2011 at 10:35 am

    It takes Barclays so long to even get to a decision from Mumbai mortgage centre, that you have forgotten you ever put the application in and lost the property anyway!!

  • Paul Rice 31st March 2011 at 4:54 pm

    HAHA…..spot on Gordon.

    Whats more likely is that instead of a definitive rule we’ll get the usual…

    “well we don’t actually know what the implications of imposing this is so tell you what – give the lenders some vague guidelines to inperpret as they see fit ?(under the premise that we’re not trying to stifle the market) then we can just fine them back into the stone age if it doesn’t pan out”.

    A typically well thought out reaction to please the masses.

  • Gordon Rae 31st March 2011 at 3:55 pm

    If it’s a money laundering issue who will be guilty of tipping off? the EU? The broker? or the lender?

  • Bob Smith 31st March 2011 at 2:37 pm

    Bonkers!

  • Bob Smith 31st March 2011 at 2:36 pm

    Bonkers!

  • Public Squeaking 31st March 2011 at 2:10 pm

    Credit scoring is and always will be a perfectly viable reason for decline. What brokers have to understand is lenders have their own internal risk scoring aswell. Its pointless saying ‘Well my ‘squeaky clean ‘client has a scoring of 999’. I bet Grant Bovey had a 999 scoring before it all went t**s up??
    What experian doesn’t tell you is that your client may be on 30k a year but have 25k outgoings, leaving 5k disposable income. Why on earth would a lender want to lend to them, that’s where lenders internal risk assessment comes into play.

  • paul rice 31st March 2011 at 2:06 pm

    Jane with the greatest respect if you can’t work out what ‘third party infomration’ means then there’s not much down for you.

    Its a nice way of saying – your application form holds about as much fact as a Harry Potter novel.

  • Keith Butler, Mortgage Analyst 31st March 2011 at 1:56 pm

    As I’ve been explaining for some years now why credit scoring of mortgages not only doesn’t work, but can’t possibly work,then lenders trying to explain “the logic involved” should prove to be entertaining.
    I’ll happily take lenders to court to argue the case – a business opportunity methinks!

  • Jane Jackson 31st March 2011 at 1:48 pm

    While I agree with Rob Roberts there are still some cases that even when you look at the credit report you still cant see what they are objecting to and then there are the cases where they say “third party information”.

  • Bill Wells 31st March 2011 at 1:43 pm

    Rob Roberts – that’s all well and good until Experian has been fed crap or attaches crap to an unsuspecting mortgage applicant’s credit file. I have known 2 cases recently where squeaky clean clients have been ‘mixed up’ with someone with a similar name who lived in the same apartment block.

    The ICO should sort out Experian and Equifax so that credit scoring and credit histories are reliable and accurate. The number of mistakes being made by these companies is a disgrace !

  • Michael Kosifou 31st March 2011 at 1:40 pm

    How comfortable will brokers feel if a lender informed them that their client’s application has been rejected because it was fraudulent?

  • John Forrester 31st March 2011 at 1:35 pm

    So tell me do you understand this reason for rejection:
    You have been declined as your credit score provides a geo delphi categorisation of 400.

    Or would the following not be ok:
    You have been declined as you have failed the lender’s credit score

    I know which one I would rather explain to my clients.

  • Andy Hall 31st March 2011 at 1:27 pm

    I kind of agree with Rob Roberts there:
    A good broker should, to some degree, understand each lenders automated credit scoring system and have a good idea about whether a client will fit with that particular lender.
    In cases where lenders suggest getting a credit report, it’s only because the DPA prevents them telling the broker what’s on there and you generally find out why the report has been requested as soon as you get to see a copy, if you actually do get to see a copy!!!

  • Victoria 31st March 2011 at 1:26 pm

    About time!

  • Rob Roberts 31st March 2011 at 1:08 pm

    I wonder will you be so quick to praise thise move when interest rates and fees increase to take into account every customer who will request a manual review when they are declined, and will you be happy when processing times are doubled and tripled on new business applications because underwriters are all backed up doing manual underwriting on a guy with 45 CCJ’s.

    Automated decision systems are exceedingly complex and are used for a reason. If a client falls outside of the specified criteria, they should be declined, as that particular lender has set its parameters in line with what it wants in a borrower. If the borrower doesn’t fit criteria, then it should be automatically kicked out because the lenders policies are what they are. If a lender sets its policies to reject people with a credit score of less than a certain cutoff point, that is their prerogative. Why should the prospective borrower insist that the company should have to manually underwrite their application when the company has put their policies in place in the automated service.

    Absolute nonsense.

  • Andy Valvona 31st March 2011 at 1:03 pm

    At Last!!!!

    Mark this date down – March 31st 2011 – the first time the EU has come up with a sensible idea relating the the Mortgage Application process!!!

  • Simon Wilkinson 31st March 2011 at 1:01 pm

    Spot on and not before time. Too much “failed credit score” with no explanation as to how this has been derived

  • Matt Mustoe 31st March 2011 at 12:53 pm

    A good thing too. The data protection act suggests that this should already be the case!

  • Peter Ireland 31st March 2011 at 12:52 pm

    Its about time! Far too many applicants are left in the dark with only “they may care to look at their credit report” as an answer. Has to be good for consumers although expect years of legal wrangling to get this into law!